Healthcare | A disastrous healthcare overhaul in Tennessee provides lessons in how Obamacare may go wrong

"A history ignored" Continued...

WASHINGTON-A healthcare proposal heralded for its ability to expand coverage while saving money.

That's the reform panacea Democrats in Congress spent the last year touting in their successful bid to transform the nation's healthcare landscape through a $1 trillion law.

Democrats say that this plan will insure 32 million additional Americans while reducing the deficit by $143 billion dollars over the next decade.

But all of this is feeling an awful lot like 1994 for Tennesseans, who say they have heard this tune before-and things didn't quite work out that way.

Sixteen years ago, Tennessee launched TennCare-an ambitious Medicaid expansion offering coverage to more of those who couldn't afford insurance or had been denied coverage. "There was real optimism in Nashville," remembers B.W. Ruffner, a Chattanooga doctor, "that we were going to be able to cover more patients for less money."

But TennCare's promise soon unraveled. In less than a decade, it almost bankrupted the state. Current Tennessee Gov. Phil Bredesen, a Democrat, called the program a "disaster." But its story provides an unsettling warning about the dangers of the new national healthcare landscape.

TennCare's enrollment surprised everyone, exploding by 500,000 within months of its inception before eventually ballooning to 1.4 million people. Since TennCare paid healthcare providers less than private plans, doctors and hospitals began to shift the costs by charging more to private insurers who then raised their premiums. Facing higher costs, businesses dumped their employees onto TennCare: About 45 percent of the new enrollees had private insurance before TennCare's inception.

Meanwhile, previously uninsured individuals came out of the woodwork, signing up for benefits so lucrative (only $2.74 a month in premiums) that people moved into Tennessee to take advantage of TennCare. Instead of saving money as promised, TennCare eventually swallowed 38 percent of the state's budget. As costs spiraled out of control (from $2.5 billion in 1995 to more than $8 billion a decade later), a Republican Tennessee governor twice proposed what amounted to political suicide in the Volunteer State: creating a new state income tax just to pay for TennCare's budget-busting ways.

"It was a big healthcare buffet and you could have everything you wanted on your tray," recalls David Shepard, a Democratic state legislator. "It was a train running wild."

A 1999 state audit found that the program paid $6 million to insure 14,000 deceased persons while 16,500 enrollees lived in other states. Tennessee soon took the title of the top state for prescription medicine consumption. "People would go to the doctor to get a prescription for Tylenol so they wouldn't have to pay for it," recounts Joey Hensley, another state legislator. "So TennCare ended up paying for the office visit as well as the prescription."

All of this for a program in a state that, four years after TennCare's inception, had a 2.1 percent decline in mortality compared to a 5.2 percent decline in surrounding states.

Shepard, a pharmacist, and Hensley, a physician, both ran for the state's general assembly in order to change TennCare.

Such reform-minded lawmakers from both parties helped Gov. Bredesen restructure TennCare starting in 2004. They cut 170,000 people from TennCare and reduced benefits-but not before having to fend off a parade of lawsuits to keep TennCare's full benefits.

That history seems to have been lost on the current designers of our new healthcare landscape-and that includes Nancy-Ann DeParle, President Obama's healthcare czar, who cut her reform teeth working as Health Services Commissioner for Tennessee Gov. Ned McWherter, the father of TennCare.

"The American people deserve to know that this bill flies in the face of real-world experience," Republican Rep. Phil Roe, another Tennessee lawmaker with an M.D., recently said in Washington.

As with TennCare, Medicaid expansion is the central tent pole of the new federal law: At least half and as many as 20 million of the 32 million people expected to get new coverage starting in 2014 will be placed on Medicaid.

This means ballooning rolls like those faced in Tennessee could become the national norm by 2014.

Nationwide, 33 states will see their Medicaid population increase by at least 30 percent while 10 of those states will see their Medicaid rolls jump by 50 percent or more, according to a Heritage Foundation study. In Indiana, officials say half a million would become eligible for Medicaid, meaning one in four residents will be on public assistance.

"The federal government essentially dumped this program onto the states and said, 'Make this run,'" said Jim Capretta of the Ethics and Public Policy Center. "State officials are going to need their own medical care after this."

While the federal government will pick up 100 percent of the tab for the first two years, that share gradually drops in successive years, bottoming out at 90 percent by 2020.

But there are also the kind of costly details you'd expect in a 3,000-page law: The new law, for example, will impose just under $12 billion in new administrative costs to the states in the program's first six years.

Worse: The big federal subsidy to the states only apples for those who are newly eligible to Medicaid, meaning states will have to foot half of the bill for those who are currently eligible for Medicaid but haven't signed up. Since individuals will be forced to carry insurance or pay a fine, many already eligible are expected to flock to join Medicaid.

In total, it is expected to cost states more than $33 billion in new Medicaid costs through 2020, predicts Heritage's Ed Haislmaier. That could wind up costing California as much as $3 billion a year.

Hints are also appearing that another part of TennCare's history may repeat itself: The Congressional Budget Office estimates that 9 million employees nationwide may lose their employer-sponsored plans and be dumped into government-paid plans.

In Tennessee, state officials are worried about a TennCare sequel. They predict Medicaid rolls will jump by more than 200,000 and cost $1.1 billion in Obamacare's first five years. That is why Tennessee Gov. Bredesen last year called congressional plans "the mother of all unfunded mandates" and why six of the nine members of Tennessee's congressional delegation voted against the final bill.

Putting any cost burden for implementing healthcare expansion on fiscally troubled states means even deeper cuts are likely in other programs. "Unlike the feds, they can't print money," Haislmaier said. In their 2010 budgets, even without the new healthcare mandate, 30 states cut education funding and 25 states reduced transportation dollars. Soon federal stimulus money, which has propped up many programs, will disappear.

The TennCare fight has shifted to controlling costs: This year the state legislature has proposed to limit hospital visits to eight a year and to limit prescriptions to five per month.

"Yes, it's rationing," admits GOP state lawmaker Hensley. "This is exactly what is going to happen on a national level in a few years."

As with TennCare, the road to federal healthcare havoc may be paved with good intentions to fix a broken system. But TennCare provides a recent case study of the fallacy of expecting more for less and of what happens when government steps in to manage care.

"It is a shame that Phil Bredesen, our Democratic governor who campaigned on fixing TennCare, did not become the Health and Human Services Secretary," lamented Rep. Roe, in a House floor speech. "What happens next is obvious to those of us who have seen this play out before."

Lee is WORLD's Washington Bureau chief. As a reporter for the Chattanooga Times Free Press, he was embedded with a National Guard unit in Iraq. He also once worked in the press office of Sen. Lamar Alexander.